Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
THE OFFICE OF REGULATORY STAFF
DIRECT TESTIMONY
OF
M. ANTHONY JAMES
NOVEMBER 2, 2009
~SGULq0
0
~, ~ 'CARO
DOCKET NO. 2009-226-E
Application of Duke Energy Carolinas, LLCfor Authority to Adjust and Increase
Its Electric Rates and Charges
Direct Testimony of Vl Anthony Jamc»
November 2, 2009Docket No, 2009-22'-E Duke Energy Carolinas, LLC
Page 1
I
23
45
678
101112
DIRECT TESTIWIONY OF M. ANTHONY JAMES
FOR
THE OFFICE OF REGULATORY STAFF
DOCKET NO. 2009-226-E
IN RE: APPLICATION OF DUKE ENERGY CAROLINAS, LLCFOR AUTHORITY TO ADJUST AND INCREASE
ITS ELECTRIC RATES AND CHARGES
13 Q. PLEASE STATE YOUR NAME, BUSINESS ADDRESS AND
14
15 A.
16
17
18
OCCUPATION.
My name is Anthony James. My business address is 1401 Main Street,
Suite 900, Columbia, South Carolina 29201. I am employed by thc State of South
Carolina as Associate Program Manager in thc Electric Department of thc Ot'fice
of Regulatory Staff ("ORS").
19 Q. PLEASE STATE YOUR EDUCATIONAL BACKGROUND AND
20 EXPERIENCE.
22
23
24
26
27
28
29
I hold a Bachelor's Degree in Engineering from the University of South
Carolina as well as a Master's Degree in Environmental Resources Management.
I am a Professional Engineer registered in the State of South Carolina, a member
of thc South Carolina Society of Professional Engineers and a member of the
NARUC Staff Subcommittee on Electricity. I have been employed as a Project
Engineer at environmental engineering consulting firms and at the South Carolina
Department of Health and Environmental Control ("DHEC'). I joined DHEC in
1991 and was promoted from Project Engineer to Program Manager in 1995. As
Program Manager in the Bureau of Water, I was responsible for coordinating
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Direct Testimony of ivL Anthony James
November 2, 2009Docket No. 2009-226-E Duke Energy Carolinas, LLC
Page 2
DHEC's statcwidc wastewater compliance efforts. In 2004, I joined ORS as
Senior Electric Specialist and was promoted to Associate Program Manager in
2009. As Associate Program Manager, my responsibilities range from supporting
senior management in reviewing baseload plant applications to lead contact for
rcncwable energy activities. Collectively, I have morc than twenty years of
6 experience as an environmental engineer in regulatory compliance.
7 Q. HAVE YOU TESTIFIED BEFORE THE PUBLIC SERVICE
COMMISSION OF SOUTH CAROLINA ("COIL'IMISSION")?
9 A. Ycs. I have tcstificd bcforc the Commission in a number of fuel clause
10 proceedings. I have also been an ORS witness regarding renewablc energy
resources, specifically, net metering programs and smart grid standards.
12 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS
13 PROCEEDING?
14 A. The purpose of my testimony is to summarize thc Electric Department's
16
17
18
19
review of Duke Energy Carolinas, LLC's ("Company" or "Duke" ) Cost of
Service Study as file in its Application. I v ill also address thc Company's pro
forma adjustmcnts to normalize weather and to adjust fuel stock inventory,
Lastly, I will address ORS's recommendation that the Company establish a storm
damage reserve fund.
20 Q. WHAT IS THE PURPOSE OF A COST OF SERVICE STUDY?
21 A.
22
23
The Company owns and operates an electric system which primarily
provides retail electric service to residential, general service, industrial and street
lighting customers, as well as vholesale customers. Each of these customer
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Direct Testimony of lvi. Anthony James
November 2, 2009Docket No, 2000-226-E Duke Energy Carolinas, LLC
Page 3
classes receives varying types of service and contribute different load
characteristics to thc system. The Cost of Service Study allocates —or assigns
responsibility for the revenues, expenses and rate base items among the individual
customer classes. That is, the cost responsibility for expenses and rate base items
should bc allocated to the customer class(cs) that caused the cost to be incurred.
This allocation methodology is refcrrcd to as "cost causation. "
7 Q. WOULD YOU PLEASE EXPLAIN THE MAJOR COMPONENTS OF A
COST OF SERVICE STUDY?
9 A.
10
Thc major components utilized in thc development of a fully distributed
Cost of Scrvicc Study are functionalization, classification and allocation.
Functionalization is the process of categorizing cost according to its function
13
14
which is either production, transmission, or distribution. Classification is further
dividing these costs into the type of scrvicc they provide, namely demand, energy
or customer. The allocation of these costs is based upon the demand, energy or
customer costs incurred by the individual classes.
16 Q. PLEASE DESCRIBE THE ALLOCATION METHODOLOGY USED BY
17 THE COMPANY IN ITS COST OF SERVICE STUDY.
18 A.
70
71
22
73
The Company filed its study based on the summer peak day One-Hour
Coincident Peak Demand, which was approved by the Commission in the
Company's last general rate proceeding in 1991. Allocation factors for the
demand related costs are two-fold. The class coincident peak ("CP") allocator
v as developed based on each customer class's contribution to the system's peak
demand of 22,056 MWs which occurred at 4:00 p.m. on June 9, 2008. This
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Direct Testimony of M. Anthony James
November 2. 2009Docket No. 2009-226-E Duke Energy Carolina», LLC
Page 4
10
12
13
allocator was used for the allocation of production and transmission investments
to customer classes. The class non-coincident peak ("NCP ) allocator was
developed based on the peak demands of each customer class whenever they
occurred during the test year. This allocator vras used for the allocation of
demand related distribution investments and expenses to customer classes. The
CP and NCP demand allocation methodology generally reflects how costs are
incurred by the Company to meet the demands customers place on the Company's
system. The energy related allocation factors v cre based on the annual kilowatt
hour ("kWh") sales for each customer class for the test year, adjusted for system
losses. The energy allocation methodology generally reflects the variable costs—
such as fuel — incurred by Duke to meet each customer class s energy
consumption requirements placed on the Company's system throughout the year.
The customer related factors vere based on the number of customers in each
14 respective class and used to allocate costs, such as meters. In addition, costs such
15 as extra facilities that were identified as being attributable to a specific class of
16 customer were directly assigned to that customer class.
17 Q. %HAT %VERE THE FINDINGS OF ORS'S REVIEW OF THE
18 COMPANY'S COST OF SERVICE STUDY?
19 A. ORS concluded that the methodology applied in constructing the
20 Company's Cost of Service Study provides a reasonable apportionment and
21 allocation of the Company's revenues, operating expenses and rate base items.
22 Q. WVOULD YOU PLEASE DISCUSS THE COMPAVY'S WEATHER
23 XORMALIZATION ADJUSTMENT?
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Dtreet Testmtntnr nf Xt Anthnns Jumrw
tsnVember 2. ZI)09
IJuul et Iso ZIJIJ)-ZZtr-I: Duke I:nusgk ( urnltnas, I l.tpage 5
1 A. Yes. ln direct testimony, Company witness McManeus states that actual
kWh sales were elevated above normal during the test year duc to extreme
temperatures. The Company has proposed a pro forma adjustmcnt to normalize
weather impacts.
5 Q. PLEASE DISCI:SS ORS'S FXAMIIVA'I IOiV OF THE COMPAN Y'S
6 AMUSTMEVT TO NORMALI7E lVKATHER
10
]2
ORS retrieved Heating Degree Day ("HDD") and Cooling Degree Day
("( DD") data from the airport weather stations utilized by the Company
(Oreenville, Charlotte and Greensboro). Similar to the Company's methodology,
ORS averaged the data from the three stations to grenerate composite data. ORS
compared the 10-year average of the composite data to the 2008 test year
composite HDD and CDD data. The comparison revealed a 1lDD variance of
13 L3% and a CDD variance of 3.3,~u. ORS does not believe these slight variances
support an adjustment to normalize weather. See Table 1 and Table 2.
1 able I: Ileatin De ree Day Evaluation:Test Fear vs. 10- ear:lvera e
Test year (2008)10-year avera e
% Difference
2,977 3,219 .3 4342,911 3,148 3,447
3,210
3,169
Table 2: Coolin De ree Da Evaluation:Test Year vs. 10- earztvera e
Test year (2008)10-year average
1,832 . 1,603 1,535 1.657
1,729 1,588 1,494 1,604
/o Difference ~
THE OFFICF. OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
D)rert Test)mony nf 51 Anthony James
November 2. 2009Iit)eket t) t) 2t)tJW22f)-8 Duke Lnersy (;)manas, LLC
Pace f)
1 Q. DID ORS PERFORJVI ADDITIONAI EXAi)IINATIONS OF THE
~)YEA'I'll ER DA'I'A?
'r'es. ORS reviewed annual IIDD and CDD historical tlat;1 for the most
recent 10-year period, 1999 throut)h 2008. Over this timcibamc) ORS observed
witle variances in the tlata when esalutttcd on a vear —tti—vcar basis. Such
s ariances make it exceptionally difficult to accurately forecast the impact of
weather on a utility's sales. Consequently, it becomes impractical to establish a
basis to sct weather normalized rates prospectively. 1 he extreme variances are
highlighted in Table 3 and I'able 4.
Table 3: Heatin De ree Da Evaluation10-Year Historical Variances
3,030
3,459
) 2,953
3,254
3,261
3,234
3,259
) 2, 938
o) 2, 877
3,219
1999 2,722 6.5 0
2000 3, 115
2001 2, 839 (2.5o/o
2002 3,075 5.6 /o
2003 3,069 5.4'!o
2004 2,989 2.7 0
2005 3,006 3.3;o
2006 2,704 (7. 1 !o
2007 2,614 (10.2'
2008 2,977 2,3'/o
3.8% 3,397
3,840
(6.2%) 3,388
3.4% 3,577
3.6% 3,586
2.7% 3,551
3.5% 3,486
(6.7%) 3, 106
(8.6%) 3, 109
2.3% 3,434
1.5%
(1.7'!o)
3.8'!o
4.0'!o
3 00/
1.1'.!o
(9.9' o)
(9.8%)0.4%
3050 3 8%
3,4'71
3,060 (3.4'!o)
3,302 4.2'!0
3,305 4.3'/o
3,258 2.8 ". 0
3250 26o
2,916 (8.0"0)
2, 867 (9.5'0)
3,210 1.3'/o
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Direct Testimony of ra Anthony James
November, 2009Docket No 2009-226-E Duke Energy Cartrlinas, I.I C
Page
Table 4: Coolin De ree Da Evaluation
10-Year Historical Variances
(I 6'/o)
6.0'/o
(14.0'/o)
7.2%(19 7"'o)
(6.9'!o)
1.9%0.4'/o
1999 1,702 1,460
2000 1,833 1,454
2001 1,486 1,545
2002 1,853 1,801
2003 1,389 1,325
2004 1,609 1,576
2005 1,761 1,665
2006 1,736 1,521
2007 2,087 1,931
2008 1,832 6.0% 1,603
(8,1'/o)
(8.4'!o)
(2.7'/o)
13.4'/o
(16.6' o)
(0.8"o)4.8'/o
4.2%
0 90/
1,337
1,301
1,302
1,638
1,223
1,534
1,635
1,503
1,932
1,535
(10.5'/o)
(12.9%)(12.9%)
9.6%
(18.1 "/o)
2.7%
9.4%0.6%
2.7%
1,500 (6.5!o)1,529 (4.6%)1,444 (9.9%)1,764 10.0'/0
1,312 (18.2':0)
1,5;3 (1.9'/o)
1,687 5.2'/o
1,5 87 (1.1'!0
1,983
1,657 3,3'/o
I Q. DID ORS REFERENCE ADDITIONAL INFORMATION DURING ITS
2 REVIEW OF THE COMPANY'S WEATHER NORMALIZATION
3 AD JUSTMENT?
4 A. Yes. ORS reviewed Commission Orders to evaluate previous
5 Commission decisions regarding weather normalization.
6 Q. WHAT WAS THE RESULT OF ORS'S REVIEW OF PREVIOUS
7 COMMISSION ORDERS?
8 A. ORS found Commission decisions that directly respond to the Company's
10
weather normalization adjustment. In Commission Order No. 78-404 dated July
13, 1978, the Commission declined the request for a weather normalization
adjustment stating that:
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Direct Testimony of M Anthony James
November 2, 2009Docket No 2tt09-226-E Duke Energy C:aroltnas, LLC
Page 8
I
2
3
45
67
8t)
101112131415161718I t)
20212223
"The Staff performed an independent analysis of thc degree-daydata utilized by the Company and compared degree-day data forsimilar periods in each of thc last thrcc years. Based upon that
evaluation, the Staffs witness, Robert M. Bryson, Chief of theElectric Department of the Utilities Division, concluded that themonthly average degree-day data for thc test period was notsufficiently abnormal from the average monthly figures for theprevious twenty-year period to justify the proposed adjustment.In addition, the Staff's analysis demonstrated that thc weatherdata varied so widely on a comparative basis as to makeaccurate projections unreasonably difficult. "
(emphasisadded).
".. . in setting rates for prospcctivc application, the Commissionmust be assured that adjustments to test year informationincorporate as much precision as possible to promote maximumfairness to thc Company and to its ratepaycrs. The character and
impact of future weather conditions do not lend themselves tosufficiently accurate measurement to lead the Commission toconclude that the Company's proposed adjustments should beallov ed. Therefore, the Commission declines to adopt thoseadjustmcnts for ratemaking purposes herein. "
24
25
26
27
Subscqucntly and consistently, the Commission has on several occasions
declined requests to include weather normalization in setting prospective rates
for utilities. See Commission Orders: Vo. 79-230 (May 17, 1979), JVo. 80-375
(June 30, 1980),. and, ,Vo. 85-841 (October 8, 1985).
Q. DOES ORS SUPPORT THE COMPAN Y'S %VEATHER
NORMALIZATION ADJUSTMENT?
30
31
32
34
A. No, we do not. The slight variances shown in Tables I and 2 do not
demonstrate "sufficiently abnormal" weather. Also, the wide varianccs shown in
Tables 3 and 4 make accurate projections "unreasonably difficult. " Therefore,
ORS believes that the Commission's reasoning and analysis in these prior
proceedings is equally applicable in the present case.
THE OFFICE OF REGULATORY STAFF1401 %1ain Street, Suite 900
Columbia, SC 29201
Direct Testimony of tt1. Anthony James
November 2, 2009Docket No. 2009-226-E Duke Energy Carolinas, EEC
Page 9
1 Q. WOULD YOU PLEASE DISCUSS THE COMPANY'S ADJUSTMENT
REGARDING FUEL STOCK INVENTORY?
3 A.
10
Yes. In direct testimony, Company witness Shrum proposes a pro forma
adjustment of $9,375,000 to align its test year coal inventory level of
approximately 36 days (at full bum) with its target inventory level of 40 days. In
supplemental direct testimony, witness Shrum proposes an additional fuel stock
adjustment of $30, 120,000 resulting in a total adjustment of $39,495,000. The
supplemental adjustment is to recover additional costs incurred due to a
significant increase in the Company's forecast of coal inventory. As of August
2009, the Company's actual coal inventory level had increased to approximately
60 days.
12 Q. DOES ORS HAVE A RECOMMENDATION REGARDING THE FUEL
13
15 A.
16
17
18
19
20
2]
22
23
STOCK ADJUSTMENT PROVIDED IN WITNESS SHRUM'S DIRECT
TESTIitrION Y?
Yes. ORS supports the Company's proposal to adjust inventory levels to
meet its 40 day target. Hov ever, ORS recommends modifying thc adjustment to
reflect thc Company's actual delivered coal cost of $87.61,'ton incurred during the
period of June 2008 through May 2009. As part of its evaluation, ORS
considered the Company's actual test year coal cost of $80.36/ton, the forecast
coal cost of $92.00/ton (September 2009 through August 2010) per the
Company's application, and thc forecast coal cost of $88.70 (October 2009
through September 2010) presented by the Company's witness Stroud in its most
recent fuel hearing (Docket No. 2009-3-E). However, ORS believes the coal cost
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Direct Testimony of M. Anthony James
November 2, 2009Docket No. 2009-220-Lr Duke L'nergy Caroltnas, LLC
Page 10
of $87.61/ton captures the costs incurred by thc Company during an clcvatcd
market in thc latter months of 2008 and morc accurately represents current and
forecast inventory coal costs. ORS's modification reduces the Company's request
from $9,375,000 to $6,010,000. Thc rate base impact of ORS's modification to
this adjustment is incorporated into ORS witness Scott's testimony.
6 Q. DOES ORS SUPPORT THE FUEI. STOCK ADJUSTMENT PROVIDED
IN WITNESS SHRUM'S SUPPLEMENTAL DIRECT TESTIMONY?
8 A.
10
12
13
No, we do not. As a consequence of the Nation's depressed economy,
electric utilities serving South Carolina are experiencing elcvatcd coal inventories.
Hov ever, ORS does not believe thc impact of such extraordinary cvcnts should
be factored into test year evaluations. ORS is aware that the Company is pursuing
several options to rcducc their elevated inventory, such as working v, ith suppliers
to postpone scheduled delivcrics. The Company anticipates their inventory to
return to normal in April 2011. This supplemental adjustment has been removed
and the rate base impact of ORS's modification is incorporated into ORS witness
16 Scott's testimony.
17 Q. WHAT RECOMMENDATION DOES ORS HAVE TO ADDRESS THE
18
19
INCREASED COSTS ASSOCIATED WITH THE COMPANY'S
ELEVATED COAL INVENTORY?
20 A.
21
22
23
Acknowledging that thc Nation's economic downturn contributed to thc
Company's high inventory levels, ORS recommends the Company bc allowed to
recover carrying costs of approximately $3,035,000 associated with its coal
forecast (February 2010 through April 2011) of approximately 1,364,000 tons of
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Direct 'I'eatimony of M. Anthony Jarnea
November 2, 2009Docket No. 2009-22O-E Duke Energy Caroltnaa, LLC
Page ll
excess coal inventory above its target level of 40 days at full load burn. Carrying
costs are to be calculated based on thc Company's cost of capital in this docket.
ORS proposes that these costs be recovered through a rider which will expire at
4 the cnd of April 2011 or sooner if inventories return to the 40 day target level.
5 Q. DOES ORS HAVE A RECOMMENDATION IN REGARD TO THE
COMPANY ESTABLISHING A STORM DAMAGE RESERVE FUND?
7 A.
10
Yes. ORS recommends the Company be allowed to establish a storm
damage reserve fund. ORS believes a storm damage reserve fund can significantly
help offset the potential financial impacts associated with severe storm events.
The Company experienced destructive ice storms in December 2002 and in
December 2005 collectively costing approximately $130,000,000.
12 Q. HAS THE COMMISSION PREVIOUSLY APPROVED A STORM
13
15
16
17
DAMAGE RESERVE FUND FOR A REGULATED ELECTRIC UTILITY?
Yes. In Order No. 96-15 dated January 9, 1996, the Commission
approved South Carolina Electric 8; Gas Company's ("SCEX.G") request to create
a storm damage reserve fund of $50,000,000 to bc collected at a rate of
$5,000,000 per year.
IS Q. HOW WOULD DUKE ESTABLISH ITS STORM DAMAGE RESERVE
FUND?
70 A.
21
22
23
If approved by the Commission, similar to SCEXG, Duke would bc
authorized to collect $5,000,000 a year to accumulate a fund not to exceed
$50,000,000. The rate base impact of this ORS adjustment is incorporated into
ORS witness Scott's testimony.
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201
Dlreer Tehnfnenu nr %1 Anthony JamesN'november
2. 200')Docket Nn 000-22(nLr Duke Fnergy ( arnlrn ra. LL('
Page 12
l Q. DOES THIS COW'CLUDE YOI:R TESTIMONY'?
Yes, it does.
THE OFFICE OF REGULATORY STAFF1401 Main Street, Suite 900
Columbia, SC 29201